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UK Government Seeks to Limit Ofcom 40Mbps FTTC Broadband Price Cut

Monday, October 23rd, 2017 (7:29 am) - Score 3,801
price and cost rises uk

Ofcom’s proposal to force Openreach (BT) into significantly cutting the wholesale price of their ‘up to’ 40Mbps (10Mbps upload) FTTCfibre broadband” product for ISPs has been dealt a blow after the Government warned it would “disincentivise investment” in new “full fibre” (FTTP/H) networks.

Earlier this year the regulator revealed, as part of their 2017 Wholesale Local Access Market Review, that they intended to impose a charge control upon Openreach’s 40Mbps tier (here and here) that would see the annual price gradually fall from £88.80 +vat per year to around £52.77 or £54.66 by 2020/21. The price is not yet set in stone as it’s dependent upon the plan for a 10Mbps Universal Service Obligation (USO).

The move was naturally welcomed by ISPs (e.g. Sky Broadband, TalkTalk) and would have also helped to encourage consumers off older ADSL services and on to the faster FTTC tier, which could similarly benefit the plans for a 10Mbps USO because a big part of that is likely to be based off fixed line VDSL2 technology (aka – Long Reach VDSL).

At the time we warned that Ofcom would have to tread very carefully because they run the risk of making FTTC so cheap that it could discourage investment in new / alternative / faster networks, which might struggle to compete against such low pricing. Lest we forget that both the Government and Ofcom are currently keen to encourage more coverage of ultrafast FTTH/P (example), especially via alternative networks (non-Openreach based).

A similar situation already exists in today’s market. Just under half of broadband lines in the UK are still based on slower pure copper ADSL based lines and that’s partly because they’re so cheap and not everybody sees the faster services (e.g. FTTC), which usually cost a few £ extra per month, as a necessary upgrade.

Now it would seem as if the Government’s Culture Secretary, Karen Bradley MP, has agreed and she told Ofcom as much in an open letter.

Karen Bradley’s Open Letter to Ofcom’s CEO (Sharon White)

Dear Sharon

I understand that Ofcom is in the process of consulting on the level of price reduction for certain superfast services, in order to correct Ofcom’s assessment that Openreach and BT are excessively profiting from the network.

It is important that unreasonable profits within the sector are addressed. However, I am concerned that price suppression could reduce demand for better services, such as fibre, and so will disincentivise investment in the network. Transformation of our existing networks to full fibre or other, more future proof, technologies will take many years. So, decisions made now have significant consequences for the future digital infrastructure of the UK and the economy that will depend on it. I appreciate that the 40/10 service is one of many on the market but it represents a wider issue as to whether the regulatory regime is at risk of not striking the right balance between ensuring appropriate consumer prices while driving necessary levels of long-term investment in the networks.

The National Infrastructure Commission intend to make this point in their interim National Infrastructure Assessment. At the point of writing, I am also expecting to receive a letter, jointly signed by Virgin, TechUK, Openreach and a number of the altnets, making the same point and questioning whether Ofcom is reaching the right decision.

In the Digital Communications Review, Ofcom stated it would “err on the side of caution with respect to investment incentives“. This is a position I share. High speed, reliable digital infrastructure is crucial for enabling our future digital economy. The UK must not be in a position in the future where our digital infrastructure cannot meet emergent demand. This is something we could examine for the Strategic Policy Statement (SPS).

With this in mind, I would be grateful for your view as to whether Ofcom is striking the right balance between keeping bills low for consumers and incentivising the necessary levels of investment in the UK’s digital infrastructure, for your current consultation and more broadly. I would also welcome your view as to whether Ofcom’s framework is constraining your ability to strike the right balance in any way. Finally, I would welcome your view as to whether there is merit at looking at new approaches to price reduction, such as reinvestment models, that can remove excess profits while driving investment in the networks.

Rt Hon Karen Bradley MP

Secretary of State for Digital, Culture, Media and Sport

Ofcom now faces an even more difficult balancing act between their desire to “protect consumers from high prices” and at the same time the need to assist with the Government’s aim of encouraging long-term investment and uptake of future ultrafast, full-fibre networks. Openreach will no doubt be pleased.

A spokesperson for Openreach told ISPreview.co.uk earlier this year, “On first viewing [Ofcom’s proposals] do not appear to incentivise more investment in ‘full fibre’ networks. The UK needs a regulatory framework that encourages investment and rewards risk. Building digital infrastructure is very expensive with long payback periods and we won’t recover our more than £3bn investment in fibre until after this charge control period.”

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Mark Jackson
By Mark Jackson
Mark is a professional technology writer, IT consultant and computer engineer from Dorset (England), he is also the founder of ISPreview since 1999 and enjoys analysing the latest telecoms and broadband developments. Find me on Twitter, , Facebook and Linkedin.
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15 Responses
  1. NGA for all

    There is a simpler question that could be asked, which is given the existing incentives in the cost recovery processes and BDUK subsidies how is OR investment in the network set or secured at a level to support the ambition for full fibre? or What assumptions for full fibre underwrite the current Ofcom price control proposals?

    • Bill

      A very good question, but I would change the “full fibre” requirement to something more practical, e.g. a fibre backbone within easy reach of maybe 98% of properties.

      By “easy reach” I mean other technologies such as Gfast, wireless or even direct fibre should be able to connect into it through appropriate means.

      Building a fibre backbone that goes close to almost everywhere should be the long term goal, but there is no need to require that all properties should have full fibre.

    • NGA for all

      Bill what you suggest is what is currently taking place. BDUK activity has funded now c30k cabinets and fibre paths to those cabinets. Where needed this has included new handover points, aggregation nodes (min of 256 fibres) and cabinets – hopefully a min. of 24 fibres of which 1 or 2 are used. The rest are available to extend further.
      BDUK have also funded at least 100K FTTP connections in some of the most unlikely places – Think Broadband have a reasonable map of the splitter locations. To that we add we add what is possible with all the deferrals – another 500k FTTP connections in rural.
      BT do have a slide out with there SPs on changing FoD back to support FTTP-GPON extensions to absorb these funds.
      So there is now not just a fibre backbone but a branch system with capacity to keep pushing further out and the monies to keep going as long as folk do not give up.

    • Bill

      @NGA

      I think we are a long, long way from the level of coverage that I have described. To suggest it is happening or plays a significant part in OR’s strategy is simply not true.

      Having done an initial rollout to near existing cabinets they seem to be resting on their laurels and not going much further. They are wasting time and money on Gfast pods attached to cabinets when they should be building many more cabinets or fibre nodes instead.

    • GNewton

      @Bill: While I agree with your statement that BT is wasting time and money its cabinet-based G.Fast pods it is nevertheless a good PR exercise for BT. Market demand for its targeted G.Fast areas will be quite low because of VM competition and the fact that full or near-full VDSL2 speeds are already available in these areas.

      BT is a commercial company so you can’t expect BT to invest in difficult rural areas with low ROI. Also, BT will be more and more limited in the coming years because of its ticking pensions scheme time bomb.

      The damage has been done, the national access network should have never been privatized in the first place.

      Anyway, common sense would dictate that rural areas would be subsidized by slightly higher broadband product prices from easier urban area, that’s how a USO should work. Unfortunately the opposite is happening with the price decreases in FTTC products.

    • NGA for all

      Bill – I agree with the resting on their laurels while the £466m Capital Deferral is also resting in their accounts.
      If these monies were used well a demand based FOD(FTTP-GPON) could make a significant contribution to filling the gaps.

    • FibreFred

      Bill,

      It’s about easy wins, they have managed to get more speed and a greater distances so have opted for cabinet based installs for now. I’m sure as things develop they’ll move G.Fast pods closer to the premise.

    • MikeW

      @Bill
      What do you mean by “within easy reach?”

      FTTC, of course, has taken fibre from the exchange (average 3.2km away) to the cabinet (average 400m away), such that 95% are within 1.2km.

      Finland’s broadband plan for FTTP is that the fibre gets within 2km of the premises.

      To me, “easy reach” is defined not by how far, but by whether someone will sell you the product.

    • MikeW

      @bill 2
      “Resting on their laurels”

      Installing pods is a no-brainer, given the existence of both fibre, power, and a connection point.

      Surely BT will then be resting on their laurels if they do that, and stop. In 2020. But only then … 3 years time. Hard to say “resting on their laurels when they haven’t started yet.

      Going further requires not just G.Fast as it exists today, but more research into the aspects that matter – both power and backhaul. Both are matters being looked at, and aren’t necessarily ready for primetime just yet.

      Perhaps better than believing BT are being slow for the longer lines is recognising that they are being speedier than normal over the short lines. Considerably speedier.

    • Bill

      @MikeW
      I can’t think of anything you have said in this post that is sensible. And do read my post carefully.

      “No brainer”: What rubbish, it clearly costs time, effort and money to add gfast pods to cabinets.

      “Hard to say “resting on their laurels when they haven’t started yet.” The fibre rollout so far for VDSL counts as “haven’t started yet” in your book? Sounds like a start to me.

      “being speedier than normal over the short lines”: That is exactly the problem I and others are raising but you are trying to spin it into something positive. What a joke! They should be attending to the slow lines not speedily making the speedy lines even speedier.

      I really hope the government do not take such spin and lies even remotely seriously.

    • FibreFred

      Why should they be attending to the slow lines first?

      Serious question.

  2. Stevie

    What an absolute mess this so-called ‘market’ is now in. The thing has been hacked about so much and there are far too many fingers in the pies.

    NGAforall raises an excellent question. How is the use of taxpayer money being monitored to ensure that the ethos and overriding purpose of that investment is protected? The poor outlook for ROI with sparse population / rural area deployment is a moot point if part of the BDUK investment is to push for service availability specifically for those people.

    This is what you get when you pump taxpayer money into a very big and fat private company that makes a lot of money and spends a lot of money, not on service improvement or investment. But on sports coverage licensing and getting celebs in their marketing material. Their other priority is shareholders. People who want decent broadband are at the bottom of the stack, along with all the poor schmucks in the company pension. But who cares about those people? They’re only the ones who work for the company and pay the company, respectively. The fat cats are far more important – that much is clear.

    Take the money back off them. They’re not using it efficiently nor in good faith.

    • MikeW

      If you think the BDUK money is being spent on sport content, then *you* are the one not paying attention.

    • NGA for all

      MikeW We do not yet have visibility of BT’s capital contribution or where they currently sit – LA investment account balances. We see reported a Capital Deferral of £466m owed to Government, so the argument is not wholly without merit. Dame Patricia Hodgson did report to the DEC 2014 CMS select Committee that BT Group switching capital to other projects was a legitmate concern.
      It remains so until we get independent audits published on the matter. This work may be beginning soon.

  3. MikeW

    Hoo-fing-ray. Even the government thinks Ofcom is getting it wrong.

    Strip. Torn off, Sharon thereof.

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